International evidence attests to the positive role of trade unions and collective bargaining in lifting wages and economic security for workers, and reducing inequality – both within workplaces, and across society. In this article, originally published in Jacobin magazine, labour law professor David Doorey (from York University) and Centre for Future Work Director Jim Stanford present Canadian data on the link between the strength of the union movement and trends in income inequality. The material was prepared for the forthcoming third edition of Doorey’s best-selling labour law textbook, The Law of Work.
By David Doorey and Jim Stanford
Strong unions can reduce inequality in society via numerous channels. Most directly, through collective bargaining they lift wages for union members, and negotiate other employment benefits that stabilize incomes and household financial well-being for union members.
Within workplaces, unionization is also associated with smaller wage gaps between workers – since wages are determined according to transparent, negotiated wage schedules (based on seniority, experience, and other objective factors), rather than arbitrary management decisions and favouritism.
In the policy and political arenas, unions mobilize to support public programs that also reduce inequality: from public pensions to unemployment insurance to more progressive taxation systems.
Finally, by lifting labour costs and limiting the unilateral authority of management, unions may reduce the profitability of private firms – although this effect may be partly offset by positive impacts of unionization on labour productivity. Reduced profitability in turn constrains the incomes received by the owners and top managers of those companies. Management bonuses, stock options, dividends, and other forms of profit-dependent income (all received disproportionately by the richest segments of society) are thus reduced, when unions are able to redistribute income from capital to labour. This produces a further moderation in income inequality across households.
The combined effect of these impacts of unions are visible in recent data on income inequality and trade union density in Canada. Canada’s overall union coverage rate (the share of workers covered by a union collective agreement) is higher than in the U.S., but has declined modestly in recent decades – from around 35% in the 1980s and early 1990s, to about 30% today.
In the same period, the share of national income captured by the richest 1% of Canadian households has increased significantly: from under 10% of national income until the early 1990s, to 14% today (with even higher shares experienced during stock market peak years, such as 2007 or 2015). The following chart illustrates this inverse relationship between union coverage top income shares.
Some of the channels linking union power to greater equality listed above are driven by overall union membership and coverage. But some are especially important in the private sector – especially via the impact of unionization on business profits, and hence on the capital income flows received by the richest households.
Unfortunately, annual data on trade union coverage in the private sector in Canada is not available before 1997. Occasional data points are provided by census surveys and other irregular sources. The following table compares the erosion of private sector trade union coverage (which has been more rapid than the erosion of overall union coverage in Canada), to the growth of top incomes.
Private sector union coverage has been halved since 1970: from 32% to 15%. Meanwhile, the top 1% share of national income has almost doubled in the same period: from 8% to 14%. Clearly, the reduced capacity of workers in Canada to use collective bargaining to wrest a greater share of income from private sector employers, has translated into a rising share of income for the richest Canadians.
Another instructive comparison can be made between Canada and its southern neighbour. Canada and the U.S. share many economic characteristics, but a stark difference is the more resilient state of Canadian unions. Overall union coverage in Canada is now almost 3 times higher than in the U.S. (30% versus 11%). Coverage in the private sector is 2.5 times higher than in the U.S. (15% versus 6%). Not surprisingly, the share of national income received by the richest 1% in the U.S. is significantly higher than in Canada: 19%, versus 14% north of the border.
The moderated intensity of inequality in Canada is not solely due to stronger unions, of course. Other policies (including higher and more progressive taxes, more generous public programs, and larger redistributive transfer payments) are also vital in moderating inequality. However, those programs, too, owe their viability in part to the continued influence of trade unions in Canada in political and social debates.
Directly and indirectly, therefore, trade unions play a vital role in strengthening the capacity of workers to win a larger share of the economic wealth they produce, and correspondingly constraining the ability of employers and owners to extract maximum economic surplus. The statistical evidence shows that Canadian unions are indeed doing that. However, to continue to play that role, unions will need to find ways to arrest and reverse the steady decline of union power that is visible in Canada’s private sector economy. Updating labour laws to extend the reach of collective bargaining to more private sector workers will help that cause, as will a heightened commitment by the Canadian labour movement to prioritize organizing in the years to come.